The Shanghai Stock Exchange rose nearly 25% in the last sessions while signs of improvement started to be seen as the economy is accelerating under the monetary control of Beijing. And this could be the beginning of a strong catch-up which could take place in 2013. The Chinese stock is one of the few remaining stock markets to be negative this year. In fact, more good news reassured investors and suggested that the second largest economy hit a bottom in 2012 and could see a new economic upturn next year.
The Chinese economy has shown more and more reassuring signs of upturn since the middle of 2012.The services PMI stood at a peak of four months in favor of a continued increase in new orders and good employment performance. The rapid growth of the service sector in China has been confirmed by the PMI index established by HSBC, last sign in date that economic activity is gaining strength. This index reached 54 in January against 51.7 in December. According to economists, China is expected in 2013 to see an increase by 8.1% of gross domestic product (GDP), after 7.8% in 2012, the lowest in 13 years. These indicators show an increase for the sixth consecutive month, a development that strengthens the hypothesis of a stronger recovery of growth than expected in China.
The improvement reflects the government investment projects announced in the second quarter of 2012 and which begin to produce their effects on the economy. This important upturn in the activity can be explained by good figures in construction and distribution industries. The strength of China's services sector shows that the Chinese economy quickly came out of its slump. Investors could take interest in the Chinese stock market again.
For several months we have strongly advised you to take long positions on China taking profit of the recovery. The index reached a medium term key level. Technically, the dynamic is bullish in weekly data above 2200 points which refers to the 20-week moving average. In the short term, we show some caution because a necessary consolidation towards 2200 points could take place in case of a break below 2450/2500 points. In contrast, a weekly break above this resistance would make us take new long positions towards 2850 points. Any decline on 2150/2200 points will also be a buying opportunity. However a larger decline to 2150 would invalidate our scenario. We can play this bullish trend thanks to a tracker on CSI 300 (IE00B5VG7J94).